which drug dealer delivers the best dividend high?
TRANSCRIPT
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Hi, My name is Aaron and I‘m with Dividend Stocks Research, and today
were reviewing our recently published article…
Sometimes, you run into a number that’s simply staggering. Here’s one
of them.
$26.6 million dollars.
Every hour Americans spend $26.6 million dollars on prescription drugs.
We all know that health care economics are virtually impossible to grasp. But did you ever imagine the retail market for prescription drugs is this massive?
Remember that national debt clock in New York that real estate developer
Seymour Durst put up in 1989?
How about a prescription drug sales clock?
With all the money floating around, a number of companies are
competing for the big money in Drugs… Companies like Costco
(COST), Wal-Mart (WMT), Kroger (KR), and even Safeway (SWY) are
active in the industry.
Despite the increasing competition, it looks like the retail pharmacy
industry is (for now) a four horse race…
Rite Aid (RAD)Walgreens (WAG),
CVS (CVS),And a Dark Horse I’m going to
introduce in a moment…
Needless to say, all this money means fat profits for companies…
and that attracts Dividend investors like flies to vinegar!
The problem is, some of these stocks are expensive, so you need to tread lightly… before we start spending
our hard earned money, let’s take a closer look art each stock.
The first company is easy - Rite Aid (RAD) doesn’t pay stock dividends
so we can toss them out the window.
So should you be looking at Walgreens (WAG), the Dividend
Aristocrat, or CVS (CVS)?
CVS (CVS)Well... CVS has been paying
dividends for six years. But it’s been on a strong run, up 46% in the past
52 weeks.We like the firm’s ability to leverage
the value of the 5 million plus customers it sees every day by
operating America’s largest retail medical clinic.
CVS (CVS)With a low dividend payout ratio of 24.7%, it can more than afford to
pay a higher dividend.
However, one big operating challenge for CVS... protecting margins on prescription drug
revenues.
CVS (CVS)You see competition is growing… CVS recently charged $150 for a monthly prescription of the generic version of
the cholesterol drug Lipitor, while Costco charged $17.
CVS (CVS)
Pressure like that is sure to Impact Margins VERY QUICKLY… and when Margins shrink, profits shrink… and when profits shrink, dividends often
get cut!
CVS (CVS)
Compared to others in the industry, CVS is your less expensive choice,
with a P/E of 19.9x… But its dividend yield is a paltry 1.35%.
CVS (CVS)
And with a yield that low, the stock looks really expensive…
So what about the other big contender?
Walgreens (WAG)
Across the street at Walgreens, we have a different story… As any drug
dealer will tell you, you get what you pay for.
Walgreen’s has its own set of challenges.
Walgreens (WAG)
The big one: figuring out how much money it can make selling
prescriptions under Medicare's Part D program.
Walgreens has already cut its long-term profit forecast because of
lower reimbursement rates and high generic drug costs.
Walgreens (WAG)You’ve got to wonder... can Walgreens keep increasing
dividends? Can a company be an Aristocrat and a drug dealer at the
same time?
To further complicate things… Walgreens is expensive.
Its P/E ratio of 30.3x is 50% HIGHER than the broad market P/E.
Walgreens (WAG)To further complicate things…
Walgreens is expensive. Its P/E ratio of 30.3x is 50%
HIGHER than the broad market P/E.Despite the high price, WAG has been trading off recent 52-week
highs, but you’re still paying a lot for another skinny 2.22% yield.
So, What About that Dark Horse Contender?
Walgreens (WAG)
Despite the high price, WAG has been trading off recent 52-week
highs, but you’re still paying a lot for another skinny 2.22% yield.
So, What About that Dark Horse Contender?
The Dark Horse Cardinal Health (CAH) Another Top Retail Pharmacy Dividend
Stock…
Cardinal Health, Inc. (CAH)
There’s another stock that pays dividends if you’re interested in this
$26.6 million dollar an hour business.
They own Medicine Shop and Medicap have 500 locations. Which is not much of a footprint compared to Walgreens’ 8,300 locations and
the 7,600 for CVS.
Cardinal Health, Inc. (CAH)
But here’s where it gets interesting.
Cardinal Health is actually two businesses in one, pharmaceutical
and medical. The medical segment markets lab and surgical products to hospitals
and doctors.
Cardinal Health, Inc. (CAH)
The pharmaceutical segment distributes both brand name and
generic pharmaceuticals, over-the-counter drugs, and other products to
retailers.
Cardinal Health, Inc. (CAH)
The two tier business gives the company great reach.
But in August, 2013, Cardinal’s pharma segment took a brutal hit.
It lost one of its two largest customers... Walgreen’s
Cardinal Health, Inc. (CAH)
Walgreens represented 21% of Cardinal’s 2012 consolidated
revenue. Despite the blow, Cardinal has actually come through this in
pretty good shape.
Cardinal Health, Inc. (CAH)
They simply crossed the street and cut a deal with… you guessed it CVS!
The challenge with Cardinal is the dividend yield is low... only 1.8%. And the stock is trading near 52-
week highs.
Do you really want to do one of these drug deals?
You might get high on Walgreens and CVS hallucinating about how an aging population will swell the lines
at the prescription counter.
Or you might drool over the Dark Horse Cardinal who’s growing in a
huge industry…
But for dividend investors concerned about yield…. They should just stay
straight, and “Just say NO!”.
All of these stocks are a rich man’s drug... over valued, expensive, and
poorly positioned right now to protect dividend investors from a
choppy market.
Walgreens (WAG)Dividend Yield: 2.22%Annual Payout: 1.35Payout Ratio: 37.5%
CVS Caremark (CVS)Dividend Yield: 1.35%Annual Payout: 1.10Payout Ratio: 24.7%
Cardinal Health (CAH)Dividend Yield: 1.8%Annual Payout: 1.37Payout Ratio: 32.2%
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